Glass House Brands Reports Declining Revenues, Cancels Prior Guidance

Glass House Brands (NEO: GLAS.A.U) last night reported its third quarter financial results. The results were a spectacular disaster, to the extent that we expect to see the ambulance-chasing alerts shortly related to class action lawsuits being levied against the firm.

The company posted third quarter revenues of $17.2 million, an 8% decline from the $18.7 million figure reported in the second quarter. Gross profit meanwhile fell an outstanding 72.7% on a quarter over quarter basis, falling from $8.6 million to $2.3 million, with gross profits representing just 14% of net sales.

On top of this, operating expenses increased substantially, climbing from $9.6 million to $11.9 million despite the declining revenue, resulting in a loss from operations of $9.5 million, and an overall net loss of $7.7 million. Adjusted EBITDA meanwhile came in at negative $5.4 million, compared to the positive $2.2 million recorded just last quarter.

And that’s just the start of it.

Commenting on the quarter, CEO Kyle Kazan stated that the Californian market “is now in the long-awaited process of commoditization.” He then states that things are turning sour for operators in the state with the the market facing “considerable pricing challenges, as a result of overproduction in the third quarter.”

Despite this overproduction, this company has still elected to move full steam ahead with its original strategy, proudly proclaiming within the same quote, “we recently closed on our 5.5 million square foot SoCal cultivation facility, which provides us with the size and scale necessary.”

The writing appears to already be on the wall, with the firm seeing biomass revenues fall by 18%, “despite a more than doubling of unit volume sales as flower wholesale prices fell by 48%.” Yet, construction began in late September on the firms large facility, with Glass House looking to add 500,000 square feet of nursey and propagation space, in addition to a 900,000 square foot greenhouse.

On top of this, the company has cancelled the guidance it originally provided in its listing statement earlier this year. Back in May, when the company was looking to prevent redemptions as part of the de-SPAC process, the company guided to 2021 revenues of $124.1 million along with gross profits of $61.6 million and adjusted EBITDA of 24.5 million, along with even more exaggerated estimates for 2022 and 2023.

Now, the company expects Q4 revenues to be “flat to down slightly compared to Q3 2021 revenues.” This expectation is a result of poor wholesale prices of cannabis within California, as well as flat to declining California retail sales expectations. As a result, net sales for 2021 as per the company are expected to be approximately $68.3 million at the high end of things – which nearly doesn’t even hit the prior guidance for gross profit.

Lastly, the firm reported a cash balance of $28.9 million, a number which suggests the company may have to conduct a financing in the near term.

As a final note, Kazan closed out his commentary on the results by stating, “All in all, this was a solid quarter for us in almost every aspect, but the temporary and very difficult market conditions dragged on our revenue, margins and EBITDA.”

Glass House Brands last traded at $5.72 on the Neo.

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